When the Debt Forgiveness Act ends in December, will Short Sales also end... or not?

We aren't hearing much about this act expiring in December.  http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief...-

If it is not renewed - what is the incentive for people to follow through with a short sale?  When the sellers are taxed on the debt forgiveness, that can mean paying tens of thousands of dollars in income tax.  Kind of like kicking someone when they are already down! 

For the most part, sellers who are coming out ahead when they sell are not being taxed on their gains....

Also, if short sales come to a screeching halt, will that mean that banks are going to wind up with more inventory as folks fall into foreclosure...?  Will that affect the strength of the banks again as they will have so much inventory on their books?

When I was in D.C. last spring, our legislatures were looking at this act just as a benefit for a few people.  It appeared they did not know how this could ultimately affect the foreclosure rate.

Thoughts? 

Views: 3820

Reply to This

Replies to This Discussion

General consenses is that it will be extended...it's an election year so you never know, but it is certainly on the radar and certainly expected to be extended.

 

http://articles.latimes.com/2012/aug/12/business/la-fi-harney-20120812

 

 

If it does not get extended...just think how crazy December will be with panicked homeowners trying to get closed before the first of the year.  For you proactive agents out there, start pushing now to try to get all your pending and near term deals closed in November or real early December.

I can see effected sellers backing out if their deals get pushed into the new year and the act has not been extended yet, and remain on the sidelines until the act is extended.  This could end up being a real mess...

My concern is that if we are not making noise about it, then it really will get lost in the package of expired cuts and when it comes time to bring some back, this one will get completely missed.  Even though no decisions will be made before the election, it would be nice to rally our RPAC and industry groups (like this one) to have clear talking points ready so that we can make the case we need to as soon as we can.

I agree Cheryl!  I don't know why we are hearing nothing about getting this Act extended, despite being an election year.  There are still many homeowners behind on their mortgage payments, that have not yet pursued a short sale.  I have been trying to spread the news about the expiration of the Debt Relief Act, and have been accused of using scare tactics, by other Realtors.  Actually, I find the whole issue of the IRS (government) seeing a forgiveness of debt, in a foreclosure or short sale, as taxable income, repulsive and excessive.  I don't know many homeowners that have had to lose their home to foreclosure or that have done a short sale having an excessive amount of money lying around so at the end of the year they could pay the IRS a fat sum of $10,000 or more.

Exactly what I think Ron

Keep in mind that the homeowner/borrower will always receive a 1099 and when they file their 1040 that is where they will address recordind the coming in and then out of the 1099, as we address the primary residence; however, remember in a short sale one of the main goals is to have the lender agree to waive the right to file a deficiency judgement against that borrower whereby if it just goes to foreclosure there is no negotiating that with the lender and not only will the borrower have the tax liability but a judgement can be filed against them that will follow them for years.  Again, always confirm with an accountant or tax attorney...

A principal reduction may also result in a 1099.

Are there tax implications if I receive principal reduction?
If the amount of principal forgiveness is equal to or greater than $600, CitiMortgage, Inc. is required to report the amount of the debt forgiven to the Internal Revenue Service on a 1099C form, a copy of which would be mailed to you. We suggest that you contact the IRS or your tax consultant to determine if you would have any tax liability. You might also refer to the IRS website at: www.irs.gov

https://www.citimortgage.com/Mortgage/pdf/NMS%20Web%20FAQs%20032712...

I don't feel a decision will be made until the 11th hour with the Presidential race this year.  In my opinion, there are still a lot of homeowners that need this tax break.  With the loan modifications out there that are not working out, that is bringing these people to need to short sale their home.  Postponing the inevitable if you will.  What everyone needs to know is that act or no act, the homeowners will be sent a 1099 if they short sale or foreclose on their home.  A short sale will yield the lower of the two figures.  I think they have to extend it or they will create an even bigger mess with the economy.   

Debt act expiring (if it does), won't have impact on short sales IMHO. Debt forgiven in foreclosure can also be taxed, and the risk of being pursued for deficiency is almost certain through foreclosure. When faced with getting sued for 100k or having to pay 10k in taxes....best option is almost always the smaller number

What is the distinction of the california tax forgiveness to expire at the end of the year and the new federal bill for debt forgiveness beginning November 1st? Or did I answer my question by using state and federal?

Does the HAFA short sale need to be closed or approved by December 31st?  I called the HOPE hotline and she said it depends on the lender.  Does anyone know what Chase's policy is?

How long will the government HAFA program be offered?

This program will accept eligible borrowers until December 31, 2013.

That is right off of Chase's website, not sure if it is an error or not.

RSS

Members

© 2024   Created by Brett Goldsmith.   Powered by

Badges  |  Report an Issue  |  Terms of Service

********************************** like buttons ************************